"Digital banking era has arrived"

"Digital banking era has arrived"

“To the question, 'Do you need more money?' hardly anybody will say 'no'. The role of the bank, as I see it, should rather be to support the client with good advice AND respective financial products, instead of just selling profitable cash loans,” said Alexander Picker, CEO of Komercijalna banka AD Beograd, in his answer to our question about the banking products that bring the most profit.

In his interview to Ekonometar, the man at the helm of the largest state-owned bank says that the consequences of losses from the previous year will affect the results in 2016 also, due to impairments, and that it is only in 2017 that we can expect Komercijalna banka to operate at a profit. “However, given all the circumstances, the most important thing is that the bank has retained the confidence of its clients, that it is generating higher operating profit than in 2015 and is introducing digital banking,” says Mr. Picker.

What is your view of the circumstances in the Serbian banking sector now, at the end of 2016?

- The Serbian banking market is well developed from the point of view of e.g. Germany at the end of the last millennium, and Serbian customers - private individuals, small and large enterprises, and communal entities are more or less happy with the offer, because basic needs are covered. Still, the world keeps on turning and new needs will be coming up. We keep being surprised by the pace of development. It is well known, that in the early days of the PC, some 40 years ago, IBM assessed the demands of the market at several hundreds and today many people have at least 2 personal computers, one being their mobile phone. So maybe the need for modern banking will arise earlier in Serbia than we imagine. Opportunities are available at any market at any time. The challenge, however, is to spot them and to make use of them.

What is the Serbian banking sector lacking in?

- Digital banking is the next stage in the development of banking. It is already well-developed in Europe, and even more in the United States. An opportunity for the Serbian banking sector lies in leapfrogging classical banking and going straight for digital banking, because banking should develop in line with the clients’ needs. A bank that gains the clients’ trust has the best chances of being the one with the quickest and the greatest development. The whole society relies on internet, electronic and digital business and it would be a great mistake for banks not to pursue this avenue in their operation.

Inflation in Serbia is low, and so are interest rates. The banks are burdened by NPLs and are not making as much money as they used to. How can banks make greater profits?

- As I said before, we can view these facts in the light of the fall of classical banking or, as I like to put it, as a clear signal to banks that they should change their way of doing business. Changes should focus on digital banking. We need a change in the banking paradigm. Banks need to gain the clients’ trust and offer them all the services the clients need. Maybe clients don’t even know what they need, but the banks are there to tell them. Banks should make life easier for the clients and the clients will turn to those banks that provide them with what they need.

Komercijalna banka has recorded a loss of 6.3bn dinars in 2015. How did you resolve the issue of such losses and is this placing a burden on the bank’s operation?

- Losses are always bad news - however Kombank has two good bits of news in addition. The first one is that the bank earns from its day-to-day business more in 2016 than in 2015. This means that we are working well, the losses are to cover the problem loans since 2008, which are haunting us even this year. The second one is that the capital situation of the bank is so comfortable at approximately 23% (almost twice the legal requirement of 12%,) that we can easily digest these losses.

How did you improve the bank’s operation?

- The new management has retained everything that was good in the bank’s operation. The most important thing is that we have retained the clients’ trust. It is thanks to this that we are operating successfully.

What business results do you expect Komercijalna banka to achieve this year?

- I will not give numbers, but they will be bad, due to impairments from as far as 2008.

To what extent is all this going to affect the privatization of Komercijalna banka, that has been announced for the next year 2017?

- The buyer will not be interested in the bank’s final result, but in the current operating income and would like to see that the problems from the past have been resolved. The buyer wants a clean slate and that is very important for privatisation. If the buyer receives a bank with old problems, that will bring the price down. But if the bank is clean from losses, then the new owner can continue with good business.

Are there buyers interested in Komercijalna banka?

- Most of these questions need to be answered by the shareholders. The management is working hard, in order to prepare the internal conditions and grounds for a successful privatization. Currently we are applying finishing touches to the three-year business plan. We are fully in time, scope and budget - as are the requirements for a well-managed project.

Do you think this is the right time for privatization of the largest state-owned bank, such as Komercijalna?

- Again, only shareholders have the privilege to answer this question. Our priorities are to define the bank’s future. We have a choice – we can either continue doing what we have done so far or we can seize the future and go for the new, digital banking products. KomeKeš is just one step in that direction.

Most banks are preparing financing models for small and medium-sized enterprises. Does the SME sector truly have that much borrowing capacity and why?

- Very good and valid question. Let me rephrase it: How can a bank support the backbone of the economy? This is very difficult, because this backbone is broken down into tiny bits and pieces. So a failure of one client is no problem for the backbone as such, but for the bank that gave the loan. Another issue is the large percentage still in the grey market and also the understanding of many SMEs that the bank should finance any of their ideas. To my mind the solution for the SME issues lies rather in a joint approach of banks, capital markets and e.g. crowdfunding, as the chamber of commerce initiatives are proposing.

You said that you would like to usher Komercijalna banka into modern, digital banking. What does that involve?

- Digitalization is very modern and sexy. You find hundreds of seminars, webinars, consultants etc. Everybody will bedazzle you with the words: Industry 4, Internet of things, blockchain etc. Every bank is spending millions on digitalization. Kombank is trying to develop good, simple to use and valuable products like KomeKeš for its clients. This is the real digitalization.

Although interests on loans are now lower than a couple of years ago, businesspeople are complaining that they are still quite high. What does it take for the interest on corporate loans to be even lower?

- Very simple - negative interest rates on savings (laughing). No, seriously there is a one to one relationship. I cannot see that loan rates can get any lower. Depending on the maturity of the loan, the quality of the client’s financials and the security instruments provided, interest rates for corporate loans range between 1.5% and 3.5% for loans with a currency clause, and between 3.5% and 6.5% for dinar loans.

We are doing this interview in the “savings month”, and ten years ago interest on savings deposits in Serbia was quite high. Contrary to this, today interest on savings is going down. What can we expect in the future?

- If I could answer your last question I would be very rich. So I think nobody can double guess these market developments. Currently the central banks are keeping interest rates low. For banks this is bad, because the spread between loan and deposit rates is shrinking too and this is the spot where banks earn money. So this leads me back to the beginning - the wind of change is blowing already. Let's change before we are blown away by the storms coming.